Coca-Cola (KO) Stock Analysis
Sector: Consumer Defensive
The Coca-Cola dividend has been paid continuously since 1920 and increased for 59 consecutive years; qualifying the company as Dividend King, Dividend Aristocrat, and Dividend Champion.
KO has a wide moat based on a powerful brand, barriers to entry, and cost advantages.
Current Dividend Annualized: $1.68
Coca-Cola (KO) Intrinsic Value – Margin of Safety Analysis
(updated June 2021)
Normalized Diluted Earnings Per Share (TTM): $1.79
Cash Flow From Operations Per Share (TTM): $2.53
Free Cash Per Share (TTM): $2.28
Estimated Intrinsic Value: $38
Target Buy Price Based on Required Margin of Safety = $32
(Required Margin of Safety Based On Risk Stability Grade:
A = 10%, B = 20%, C = 30%, D = 40%, F = 50%)
Target SELL Price Based on Estimated Intrinsic Value = $44
(Allow Overvaluation Adjusted by Risk Stability Grade:
A = 20%, B = 15%, C = 10%, D = 5%, F = 0%)
Risk & Stability Grade: B
A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.
B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.
C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.
D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.
F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.
Financial Risk Grade: B
A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.
B grade indicates a very low probability for a dividend cut.
C grade indicates a low probability for a dividend cut and/or average safety risk.
D grade indicates there are issues that should be considered concerning future dividend payments.
F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.
Earnings Quality Grade: B
A grade indicates earnings quality is high and far above average.
B grade indicates earnings quality is good and/or above average.
C grade indicates earnings quality is acceptable or average.
D grade indicates earnings quality is poor and requires thoughtful due diligence.
F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.
The company had been of the most consistent and profitable companies in the world until the last decade. The profitability and consistency of this company caused investors to bid the price up to the point where it was the most overvalued dividend blue-chip. Given the high stock valuation the company will have to outperform to provide even average stock returns in the long run. This is unlikely given the current competitive climate.
Earnings Report: 3/31/21
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AAAMP Portfolios Position Disclosures:
Dividend Growth & Income – None
Treasure Trove Twelve – None
Global Dividend Balanced – None
Global Value – None
Global Value Aggressive – None
High Yield – None
Sector: Consumer Defensive
Industry: Beverages – Soft Drinks
The Coca-Cola Company is the largest nonalcoholic beverage company in the world, with $32 billion in annual revenue. Its portfolio includes a variety of carbonated and noncarbonated brands, including Coca-Cola, Diet Coke, Fanta, Sprite, Minute Maid, Powerade, and Dasani.
The firm has both concentrate and finished product operations, with concentrate sales contributing nearly two thirds of revenue. Trademark Coca-Cola contributes 45% of unit case volumes worldwide. Coca-Cola generates the majority of its revenue outside of the United States.
Coca-Cola’s most valuable strength is its brand. The Coca-Cola brand is known and well-respected throughout much of the world. Their products can be found in over 200 countries; largely because of their unmatched direct-to-store delivery distribution network.
Customer loyalty is high. With only one major competitor (Pepsi) KO has many advantages including tremendous economies of scale. Their brand, manufacturing and distribution systems, and established relationships with retailers worldwide provide significant barriers to entry for any potential new competitors.
A lack of product diversification is KO’s greatest weakness. While Pepsi has been able to diversify into other segments, Coca-Cola relies on the beverage industry for its profits and future growth.
Another problem (or weakness) is Coca-Cola’s need for massive amounts of pure water. In a world with shrinking supplies of potable water, the company’s need for water becomes critical.
Coca-Cola’s strengths (brand, distribution network) give it unparalleled opportunities in the developed and under-developed markets. Their superior system of production and distribution of their products (supply chain) gives them advantages to launching new products or purchasing products from other companies that could enable Coca-Cola to grow.
For example, the acquisition of Costa which closed in January 2019, should bolster its presence in the coffee category, particularly in the U.K., where Costa has more than a one third share of coffeehouses.
The biggest threat is the trend towards healthier beverages. The company must adapt to consumer preferences; including the demand for less sugary drinks. Sales to restaurants and entertainment customers are negatively impacted due to COVID-19.
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While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.